What Not To Do When Getting A Mortgage

Dated: 02/27/2018

Views: 258

Waiting until you can make a 20% down payment

A 20% down payment is the golden number when applying for a conventional home loan, since it enables you to avoid paying private mortgage insurance (PMI), an extra monthly fee of 0.3% to 1.15% of your total loan amount. But with mortgage rates where they are today—in a word, low—waiting for that magic 20% could be a huge mistake, since the more time passes, the higher mortgage rates and home prices may go!


Meeting with only one mortgage lender

According to the Consumer Financial Protection Bureau, about half of U.S. home buyers only meet with one mortgage lender before signing up for a home loan. But these borrowers could be missing out in a big way. Why? Because lenders' offers and interest rates vary, and even nabbing a slightly lower interest rate can save you big bucks over the long haul.

In fact, a borrower taking out a 30-year fixed rate conventional loan can get rates that vary by more than half a percent, the CFPB has found. So, getting an interest rate of 4.0% instead of 4.5% on a $200,000, 30-year fixed mortgage translates into savings of approximately $60 per month, or $3,500 over the first five years. So to make sure you're getting the best deal possible, meet with at least three mortgage lenders. You’ll want to start your search early (ideally, at least 60 days before you start seriously looking at homes). 


Getting pre-qualified rather than pre-approved

Mortgage pre-qualification and mortgage pre-approval may sound alike, but they’re completely different. Pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don't need to produce any paperwork to back it up. In return, you’ll get a rough estimate of what size loan you can afford, but it's by no means a guarantee that you'll actually get approved for the loan when you go to buy a home.

Mortgage pre-approval, meanwhile, is an in-depth process that involves a lender running a credit check and verifying your income and assets. Then an underwriter does a preliminary review of your financial portfolio and, if all goes well, issues a letter of pre-approval—a written commitment for financing up to a certain loan amount.


Moving money around

To get pre-approved, you have to show you have enough cash in reserves to afford the down payment. (Presenting your mortgage lender with bank statements is the easiest way to do this.) Nonetheless, your loan still needs to go through underwriting while you're under contract for your loan to be approved. Because the underwriter will check to see that your finances have remained the same, the last thing you want to do is move money around while you’re in the process of buying a house. Shifting large amounts of money out or even into your accounts is a huge red flag.


Applying for new lines of credit

If you apply for a new credit card or request a credit limit increase a few months before closing, watch out: Credit inquiries ding your credit scoreby up to five points. So, don’t let the credit inquiries add up.

Applying for multiple lines of credit while you’re buying a house can make your mortgage lender think that you’re desperate for money—a signal that could change your mortgage terms or even get you denied altogether, even if you've got a closing date on the books.


Changing jobs

Mortgage lenders like to see at least two years of consistent income history when pre-approving a loan. Consequently, changing jobs while you’re under contract on a property can create a big issue in the eyes of an underwriter.

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